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The persistence of inflation and uncertainty on markets, regardless of extra proof of a central financial institution pivot coming on the finish of 2023, ought to go away some traders and advisors cautious about danger and outcomes. Of their outlook, BMO GAM highlights how structured end result ETFs might add further transparency to their investments. They advocate for so-called “buffer ETFs” in additional risk-averse shopper portfolios, which use a protecting possibility overlay to guard in opposition to draw back whereas capping upside development.
For shoppers who need returns however count on low upside from markets, they see alternative in “accelerator ETFs.” These merchandise declare to ship “roughly double the worth returns as much as a cap, with solely single draw back publicity of an underlying reference asset.”
Taking a look at index equities, the outlook highlights the outsized position the so-called “magnificent seven” performed in investor returns final yr. The priority, now, is whether or not these seven corporations can preserve their outperformance. Many have predicted {that a} broader universe of shares in development sectors like tech may make up the hole between themselves and the mega-caps.
BMO GAM’s outlook highlights that traders’ tech ETF publicity could also be decided by their expectation for fee cuts this yr. Those that count on the Fed to chop early and sometimes in 2024 could also be concerned about publicity to the tech-heavy Nasdaq 100. Traders who see inflation as stickier than anticipated could also be extra concerned about publicity to large-cap worth corporations, which have a tendency to supply higher stability.
Traders flocked to money belongings and extremely short-term bonds in 2023. Excessive curiosity financial savings account (HISA) ETFs gathered $10 billion in belongings final yr, however a ruling by OSFI in November might have worn out a few of their yield benefit over different money merchandise. BMO GAM due to this fact expects extra fund flows to cash market funds and merchandise that provide yield and relative liquidity.
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